PPP Summary Paper

Public Services
Services International Research Unit (PSIRU)

www.psiru.org
Public-Private Partnerships (PPPs)
Summary paper
October 2008
By David Hall
d.j.hall@gre.ac.uk
A report commissioned by the European Federation of Public Service Unions (EPSU) www.epsu.org
PSIRU, Business School, University of Greenwich, Park Row, London SE10 9LS, U.K.
Website: www.psiru.org Email: psiru@psiru.org Tel: +44-(0)208-331-9933 Fax: +44 (0)208-331-8665
Researchers: Prof. Stephen Thomas, David Hall (Director), Jane Lethbridge, Emanuele Lobina, Vladimir Popov, Violeta Corral
Public Services International Research Unit (PSIRU) is part of the Department of International Business and Economics in the
Business School at the University of Greenwich (www.gre.ac.uk). PSIRU’s research includes the maintenance of an extensive
database on the economic, political, social and technical effects of liberalisation, privatisation and restructuring of public
services worldwide, on the multinational companies involved, and on the policies of international financial institutions and
the European Union, especially in water, energy and healthcare. This core database is financed by Public Services
International (PSI
PSI – www.world-psi.org ), the worldwide confederation of public service trade unions. PSI and the European
Federation of Public Service Unions (EPSU – www.epsu.org ) commission many of the reports of PSIRU. PSIRU is a member of
the PRESOM and GOVAGUA networks, and coordinated the WATERTIME project, all funded by the European Commission.
PSIRU is teaching a new Masters in Public Administration degree (MPA) at the University of Greenwich from September
PSIRU University of Greenwich www.psiru.org
TABLE OF CONTENTS
0. INTRODUCTION ..................................................................................................................... 3
1. OVERVIEW ............................................................................................................................. 3
1.1. CONCEPT AND DEFINITIONS .................................................................................................................. 3
1.2. GROWTH OF PPPS .............................................................................................................................. 3
2. EU LAW AND POLICIES IN RELATION TO PPPS................................................................. 4
2.1. LIMITS ON GOVERNMENT DEFICIT........................................................................................................... 5
2.2. EU PROCUREMENT LAW AND PPPS....................................................................................................... 5
3. CLAIMS AND MYTHS ABOUT PPPS ..................................................................................... 6
4. EVALUATING PPP PROPOSALS .......................................................................................... 7
4.1. COST OF CAPITAL ................................................................................................................................. 7
4.2. CONSTRUCTION COSTS ........................................................................................................................ 8
4.3. EFFICIENCY ......................................................................................................................................... 8
4.4. TRANSACTION COSTS ........................................................................................................................... 8
4.5. UNCERTAINTY ...................................................................................................................................... 8
4.6. THE SUMMARY CASE OF METRONET: LEARNING FROM A FAILURE. ........................................................... 9
5. ALTERNATIVES TO PPPS ................................................................................................... 10
5.1. EU FRAMEWORK ................................................................................................................................ 10
5.2. PROCUREMENT DIRECTIVES................................................................................................................ 11
5.3. UNION INVOLVEMENT IN PUBLIC SERVICES REFORM .............................................................................. 11
5.3.1. EU level union initiatives on public service principles.............................................................. 11
5.3.2. Dialogue at national and local level ......................................................................................... 11
5.3.3. Worker participation ................................................................................................................. 11
5.4. PUBLIC PARTICIPATION ....................................................................................................................... 12
5.5. REFERENDA....................................................................................................................................... 12
5.6. SERVICE QUALITY AND PROCUREMENT ................................................................................................ 13
5.7. PUBLIC OWNERSHIP AND PUBLIC FINANCE............................................................................................ 13
5.8. EUROPEAN SOCIAL MODEL AND SOLIDARITY ........................................................................................ 13
5.9. UNION CAMPAIGN IN ITALY .................................................................................................................. 14
6. PUBLIC SERVICE WORKERS AND PPPS .......................................................................... 14
6.1. PUBLIC SERVICES AND EMPLOYMENT ISSUES ....................................................................................... 14
6.2. LEGAL FRAMEWORK ........................................................................................................................... 15
6.2.1. ‘Fair wages’ clauses ................................................................................................................ 15
6.2.2. EU procurement laws .............................................................................................................. 16
6.2.3. Other EU law and institutions .................................................................................................. 17
6.3. NEGOTIATED AGREEMENTS................................................................................................................. 17
6.3.1. Framework agreements and national PPP policies................................................................. 17
6.3.2. Codes and agreements on pay and conditions ....................................................................... 18
6.4. NATIONAL AND LOCAL PROCUREMENT RULES ....................................................................................... 18
7. BIBLIOGRAPHY ................................................................................................................... 20
8. NOTES .................................................................................................................................. 23
October 2008 Page 2 of 26

0. Introduction
This paper is a summary of three reports commissioned by the European Federation of Public
Service Unions (EPSU) dealing with the subject of public-private partnerships (PPPs) in Europe. It
covers the development of PPPs and sets out a framework for:
a critical evaluation of PPP proposals;
positive initiatives for the improvement of public services and strengthening of the role of
the public sector, as alternatives to PPPs; and
ways in which trade unions in Europe have negotiated protection for their workforces under
PPPs.
Each section deals with relevant EU law and policies.
1. Overview
1.1. Concept and definitions

In the 1990s a specific form of privatisation was developed to deal with limitations on public
borrowing. This involved using a private company to borrow money, build a new hospital, school,
road, etc, and then operate it over many years, recouping the investment and profit from payments
over the whole period of operation. In the European Union (EU) in particular, these have become
known specifically as PPPs. There are two main forms of PPPs: Firstly, concession contracts,
where the company gets paid by user charges – for example in water services, or toll roads.
Secondly, contracts typical of the private finance initiative (PFI) in the UK, where the company gets
payments from a public authority. There is also a third meaning of PPP, which the European
Commission has called an ‘institutional PPP’. This is a joint venture company, providing a public
service, which is partly owned by a public authority and partly owned by a private company or
private investors.
1.2. Growth of PPPs

In the UK the total value of PPPs/PFI deals was nearly £60billion (€75 billion) by the end of 2007.
The value of all PPPs in the rest of Europe had risen to a total of €31.6 billion by the end of 2006 1
In European countries as a whole, transport infrastructure accounts for 82% by value of all
completed, current and projected PPPs; in the United Kingdom (UK) over half of all the PFI/PPP
projects are in health, education and local government
Table 1. PPPs in Europe

Source: IFSL (2008)
Table 2. PPPs/PFI in UK
Source: IFSL (2008)
A number of companies have developed as multinational specialists in building and operating

public infrastructure and services. These include companies with sectoral specialisms, e.g. in water
and waste Suez, Veolia, and FCC; construction companies e.g. Hochtief and Bouygues; and a
large number of banks and other financial institutions. The financial institutions which are buying
infrastructure PPPs include a group of specialist private equity firms operating so-called
infrastructure funds. The largest of these is the Australian bank Macquarie.2
2. EU law and policies in relation to PPPs

The rules, laws and policies of the EU have a significant effect on the use of PPPs. They can be
divided into three main headings:
EU rules on government borrowing, which creates incentives for PPPs
European Commission policies of promoting and encouraging PPPs
procurement laws, which affect how PPPs have to be created

2.1. Limits on government deficit

The limits on government borrowing defined by EU, national and International Monetary Fund
(IMF) policies is the strongest explanation for the growth in PPPs. The EU fiscal rules were
introduced in 1996 as part of the Maastricht treaty, and state that “Member states shall avoid
excessive government deficits”, defined as 3% for the ratio of the planned or actual government
deficit to GDP and 60% for the ratio of government debt to Gross Domestic Product (GDP). The
EU definitions of general government exclude public enterprises which operate commercially
through charging for services. The EU rules create an incentive for PPPs in government
operations which are not carried out through trading operations, such as many health and
education services, because they shift borrowing for capital investment from the government to the
private partner.
The European Commission (EC) and other EU bodies have been actively facilitated and
encouraged PPPs.
In 2004 the EC issued a green paper on PPPs 3 which aimed: “to facilitate the development of
PPPs under conditions of effective competition and legal clarity”.4 Public banks guaranteed by the
EU and member states, the European Investment Bank (EIB) and European Bank for
Reconstruction and Development (EBRD), finance PPPs.5 In 2003 and 2004 guides were issued
stating that “The European Commission has an interest in promoting and developing PPPs within
the framework of the grants it provides” 6. The EC has created a European PPP Expertise Centre
(EPEC), and, with the EIB and the EBRD created the Joint Assistance to Support Projects in the
European Regions (JASPERS): “The key priority of JASPERS is the preparation of PPPs to help
ensure that they are compliant and compatible with necessary regulations.”7
A ruling by Eurostat, the Statistical Office of the EC, in February 2004, stated that the assets
involved in a PPP should be classified as non-government assets, and therefore recorded off
balance sheet for government, as long as (a) the private partner bears the construction risk, and
(b) the private partner bears either availability or demand risk. 8 This is an easy requirement – the
IMF warned that the ruling: “gives considerable cause for concern , because it could provide an
incentive for EU governments to resort to PPPs mainly to circumvent the fiscal constraints.” 9
There is further uncertainty because international financial reporting standards (IFRS) now
recommend that asset ownership in service concessions should be decided on the basis of
effective control, not risk transfer.10 This is expected to force governments to treat PPPs as public
debts after all.11
2.2. EU procurement law and PPPs

EU procurement laws do not fit simply with PPPs. Some PPPs are concessions, which are
technically exempt from the procurement directives, although they are still subject to the
competition and transparency rules of the treaty.12 The EC proposes to issue a new
communication. Other PPPs, where the contractor is paid by the public authority, are contracts
subject to competitive tendering under the procurement directives. This has created problems, as
many PPPs were signed without any competition, and a number have been ruled illegal as a result.
For companies which are jointly owned by public authorities and private shareholders, known as
‘institutional PPPs’, the EC published an interpretative communication in February 2008.13 Its
overriding concern is to remove uncertainty that might deter the creation of IPPPs.
However, a series of judgments by the European Court of Justice (ECJ) concerning the in-house
exemption from competitive tendering has created great uncertainty, especially for corporatised
‘arms-length’ entities.
The Arnhem judgment ruled that if there is competition from private companies to provide a
service, then a municipally owned entity providing that service must be regarded as a
commercial entity, not as a public law body pursuing public service objectives, and so could not
be awarded contracts without open competitive tendering. 14
The Teckal judgment ruled that an organisation can only be assigned work without competitive
tendering if the public authority exercises over it: “a control which is similar to that which it
exercises over its own departments” – and if the ‘essential’ part of its work is for the public
authority. 15

The Parking Brixen case ruled that an organisation could not be treated as an in-house entity,
even if it was 100% owned by the municipality, if there was a possibility that the municipality
might sell some shares to a private investor and thus lose control 16 (the Stadt Halle case had
already ruled that even a minority private shareholding makes it impossible for an entity to be
treated as an in-house operation17).
The effect of these rulings is that public sector organisations are treated increasingly like private
contractors or PPPs. This is especially damaging in countries such as Germany where many local
services are carried out by a large number of public sector organisations with various legal forms.
18
The interpretation of procurement law by the ECJ has also damaged another widespread form of
public sector cooperation, inter-municipal organisations, which enable municipalities to cooperate
and take advantage of economies of scale. The EC has taken cases against Spain, France,
Germany and Italy, prompted by complaints from private contractors, arguing that the provision of
services by municipalities to such organisations, or vice versa, are contracts which should be
subject to competitive tendering. 19.20 2122
3. Claims and myths about PPPs

Four claims made by supporters of PPPs are: firstly, that there is no alternative to PPPs; secondly,
that PPPs allow public money to be spent on other things; thirdly, that governments are relieved of
risks, which are transferred to the private companies; and fourthly, that the private sector is
intrinsically superior at delivering goods and services.
Governments claim that, because of the constraints on government borrowing, and a reluctance to
increase taxes or charges, projects such as new schools and hospitals could not go ahead at all
without PPPs. But the ‘budgetary constraints’ on government borrowing are political decisions, not
set in stone. Many countries have even undertaken borrowing which breaches the Maastricht rules,
and the EC had to revise its rules to allow for longer adjustment. The financial crisis of 2008 has
shown how governments everywhere are increasing their spending and borrowing in order to
support the financial sector and the economy in general. The scale of this is far greater than
investments raised for public services through PPPs. The nationalisation of one failed bank in
the UK (Northern Rock) in 2008 increased the UK national debt by £87billion – a figure
greater than the combined total value of all the PPPs and PFIs ever signed over the last 13
years in the UK (£60billion) and the whole of Europe (€32billion, equivalent to £26billion). 23
The same is true of taxation. Governments constantly adjust taxes, and often increase them, even
in periods of economic difficulty. For example, in September 2008 France increased taxes on
capital by over 1%, generating €1.5billion per year to fund a social initiative
The second key assertion is that PPPs are better because somehow they do not cost the public, or
the public sector, anything. This myth takes various forms: the idea that the public – or the public
authorities – do not have to pay for schools or hospitals developed by PPPs; the idea that the
government or municipality will have more money left to spend on other services; and the idea that
PPPs mean a reduction in borrowing. But in PPPs like hospitals or schools, the government pays
for the cost of the PPP from taxation – by paying for the cost of construction, and then the cost of
running the service. So PPPs are paid for by the public sector in just the same way as projects
carried out directly by public authorities.
The notion of ‘risk transfer’ plays an important role in justifying PPPs. In the UK, major hospital PFI
projects looked worse value than the public sector option until an estimate of ‘risk transfer’ was
introduced, although no attempt is made to monitor if this risk transfer happens in reality.24 But
transferring risk is not free. It is possible to write contracts which transfer the risk of construction
delays to the contractor, for example – but these contracts cost about 25% more than conventional
contracts (see below). An economic analysis of risks and PPPs concluded that it is most efficient
for demand risk to remain with governments, rather than the private sector, even if a PPP is used –
and so it would be a waste of money to pay for this risk to be transferred to the private sector. 25

The final claim is that the private sector is more efficient in all areas than government and public
sector employees. It is assumed that private companies can finance investment more cheaply and
easily, and operate a service more efficiently, than the public sector. These assumptions are false.
In almost every country in the world, governments can borrow money more cheaply, at lower rates
of interest, than the private sector. And empirical evidence shows that the private sector is not
overall more efficient than the public sector.
4. Evaluating PPP proposals

As the IMF insists: “When considering the PPP option, the government has to compare the cost of
public investment and government provision of services with the cost of services provided by a
PPP” 26
In practice, PPPs rarely carry out such a comparison - some PPP assessments only consider
whether the PPP is economically feasible for a private consortium. A report on PPPs in the health
sector in Italy found that “Italian health-care trusts…. neither drew up any calculation for weighting
their future costs and revenues related to the project, nor did they consider the social
consequences for the community. They merely followed the legal requirements and prepared a
financial plan from the private partner perspective. 27A state audit office report in Estonia said that
PPPs have been assessed “by primitive investment accounting, measuring the benefits in terms of
cost savings and profits”: as a result “non-transparent, costly and unfavourable contracts” have
been signed. 28
This section sets out a framework for evaluating whether any PPPs is preferable to a ‘conventional’
public sector approach. The first heading of evaluation is to compare the costs of capital finance for
the PPP proposal and for the public sector alternative; the second is to compare the cost of
construction; the third is the comparative efficiency of operation; the fourth looks at the
comparative costs associated with setting up and monitoring a PPP contract; the fifth compares the
uncertainties involved in such contracts.
Table 3. Framework for evaluating PPP proposals against public sector alternative
Evidence Note
1 Cost of capital Interest + PPP more expensive Private sector has to pay higher interest rates than
dividends government
2 Cost of PPP more expensive Higher cost of ‘turnkey’ projects, offset by saving
construction on cost of overruns
3 Cost of operation Efficiency Neutral Empirical evidence suggests no significant
difference
4 Transaction costs Preparation and PPP more expensive Costs of preparing contracts and tenders
tendering
Monitoring PPP more expensive Costs of monitoring and supervising contractors
5 Uncertainty Renegotiation PPP more risky Future renegotiations and changes
and contingent
liabilities
4.1. Cost of capital

Governments can nearly always borrow money more cheaply than private companies or private
individuals. This is because there is very little risk of defaults. This means that any PPP always
starts with a handicap of higher costs of capital – which can only be offset by lower operating
costs, i.e. greater efficiency, as emphasised by international institutions and commentators:
“….the cost of capital of the private partner is usually higher than that of government, i.e. the
interest rate on private sector loans usually exceed the interest rate on public sector loans.
Thus…if the efficiency gain [of a PPP] falls short of the additional interest cost, the minimum unit
price at which the private partner can deliver the service will not be lower than the price
government will pay in the case of traditional procurement.” (OECD 2008 )29 ; “….when PPPs
result in private borrowing being substituted for government borrowing, financing costs will in most
cases rise even if project risk is lower in the private sector.” (IMF 2004)30 ; “….it seems obvious

that the finance of assets is a suitable function for the public sector, which has one huge
advantage - the ability to borrow cheaply.” (Martin Wolf)31.
4.2. Construction costs

It is frequently argued that the construction stage of PPP projects is invariably completed on time
and within budget, and that this is a crucial advantage of PPPs over conventional public sector
projects. But the certainty of completion is achieved through “turnkey contracts”, under which the
contractor accepts responsibility for a wider range of risks, and contractors have to be paid more
for doing this. A European Investment Bank (EIB) report compared the cost of PPP road projects
across Europe with conventionally procured road projects, and found that the PPPs were on
average 24% more expensive than the public sector option. 32The extra expense benefits the PPP
financier, who requires greater certainty about completion date, because the returns on
investment only begin when the building is completed.
4.3. Efficiency
Empirical evidence from a number of studies shows public operators are as likely to be more
efficient as private operators. So in evaluating PPPs there cannot be any general assumption
of superior private sector efficiency – the assumption should be of neutrality. A global review
of empirical evidence on efficiency of public and private utilities in 2005 by the World Bank
concluded: “For utilities, it seems that in general ownership often does not matter as much as
sometimes argued...” 33 A study of cities with different types of bus operators found that the most
efficient cities were equally likely to be public or private. 34 A study of the use of PPPs in defence
in the UK concluded that PPPs do not necessarily lead to efficiency gains and that there are
significant costs and disadvantages.35
4.4. Transaction costs

The transactions costs involved in setting up PPPs, negotiating and renegotiating the details, and
the monitoring and liaison between the public authority and private company, including legal
processes, are higher than ordinary construction contracts. A study by EIB researchers of
transaction costs in 55 PFI projects and 32 EIB projects found that the procurement costs
averaged over 10% of the total value of each PPP contract. 36 In the USA, monitoring costs are
estimated to be 10 percent of the contract value in PPPs.37 If the EIB and the USA data are
combined, then the total transaction costs for PPP projects could average over 20% of the total
project value.
4.5. Uncertainty
PPP contracts, like other contracts, are imperfect (or ‘incomplete’). They cannot cover all the
unknown circumstances and possible problems with delivery of service – especially over 25 to 30
years, a common lifetime for a PPP contract. Companies systematically underestimate the costs
of the investments, and exaggerate the expected demand for the service. A global study concluded
that: “The problem of misinformation is an issue of power and profit and must be dealt with as
such, using the mechanisms of transparency and accountability.” 38 Renegotiations are nearly
always to the benefit of the private contractor, at the expense of the public. In one year in the UK,
2006, changes were made to PFI contracts costing a total of about £180million. 39 One form of
abuse of a PPP is when monopoly concessions are used to overcharge customers. A
comprehensive study of water PPPs in France found that in 2004, after making allowance for all
other factors, the price of water under PPPs is 16.6% higher than in places where municipalities
provide the service...40 A number of PPPs have been ruled invalid because they breached basic
competition rules, and even involved clear corruption. The citizens of Farum, a small town in
Denmark, had to pay an extra 3, 2% local income tax to rectify the municipal finances after corrupt
PPPs set up by the mayor.
The rigidity of the contractual obligations to PPPs can mean that the spending of this money gets
priority over other spending, even at the expense of services. In the UK, the annual payments by
NHS trusts to the PFI contractors continue for the next 38 years, peaking at £2billion per year in

2029, and total £57 billion. At the Queen Elizabeth Hospital trust in Greenwich, the costs of a PFI
scheme rose to 11.3%, and the hospital cut clinical services by 10%.
It is therefore extremely important that allowance should be made for the potential costs of various
problems in assessing the comparative value of any PPP proposal.
Chart A. Expenditure on PFI schemes in the NHS
Annual value of payments due under PFI health schemes 2000-2046 (£m.)
2,500.00
2,000.00 2,037.64
1,500.00
£m.
1,000.00
500.00
-
00
03
06
09
12
15
18
21
24
27
30
33
36
39
42
45
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Source: calculated from Treasury PFI projects list http://www.hm-
treasury.gov.uk/documents/public_private_partnerships/ppp_pfi_stats.cfm
4.6. The summary case of Metronet: learning from a failure.

In 2007 Metronet, one of the largest PFI schemes in the UK collapsed. The parliamentary report on
its failure41 makes strong recommendations:
“Metronet’s shareholders, had the company been operated effectively, stood to make quite
extravagant returns. Now that it has failed, it is the taxpayer and the Tube passengers who must
meet the cost.
“In terms of borrowing, the Metronet contract did nothing more than secure loans, 95% of which
were in any case underwritten by the public purse, at an inflated cost - the worst of both
possible worlds…..”
“Metronet’s inability to operate efficiently or economically proves that the private sector can fail
to deliver on a spectacular scale…. The evidence is clear: it cannot be taken as given that
private sector involvement in public projects will necessarily deliver innovation and efficiency….
Future assessments of the comparative value for money of private sector-managed models for
infrastructure projects should not assume a substantial efficiency-savings factor;
“The Government should bear the Metronet debacle in mind if and when its parent companies -
Atkins, Balfour Beatty, Bombardier, EDF Energy, Thames Water - next come to bid for publicly-
funded work.
“The Government should remember the failure of Metronet before it considers entering into any
similar arrangement again. It should remember that the private sector will never wittingly
expose itself to substantial risk without ensuring that it is proportionally, if not generously
rewarded. Ultimately, the taxpayer pays the price.

“Whether or not the Metronet failure was primarily the fault of the particular companies
involved, we are inclined to the view that the model itself was flawed and probably inferior to
traditional public-sector management. ….. In comparison, whatever the potential inefficiencies
of the public sector, proper public scrutiny and the opportunity of meaningful control is likely to
provide superior value for money. Crucially, it also offers protection from catastrophic failure. It
is worth remembering that when private companies fail to deliver on large public projects they
can walk away—the taxpayer is inevitably forced to pick up the pieces.”
5. Alternatives to PPPs
Unions and other organisations in many EU countries are developing ways of improving and
strengthening the role of public services. These initiatives focus mainly on strengthening
democratic processes, through public participation; increasing the potential for worker participation;
improving the quality of services, for example through progressive procurement policies; and
strengthening the role of public ownership and public finance. These initiatives are alternatives to
the widespread ideology which favours the introduction of the private sector, or private sector
management techniques, into public services. 42
5.1. EU framework
Much of the EU legislative framework has created problems for public services. These include the
competition and internal market principles of the treaty, the related provisions on state aid, and the
rulings of the ECJ on these issues and on the interpretation of the procurement directives. The
decisions of the ECJ have made it increasingly difficult to maintain direct public provision of
services, by extending the circumstances in which authorities have to offer work for public
tendering. Investment in public services is also constrained by the limits on government borrowing
which form part of the rules of the EU economic and monetary union. But it is still possible, within
the existing EU framework, to pursue policies which promote public services. In this section
references to articles are to the existing consolidated treaty, unless specified as referring to the
proposed new treaty.
Despite the problems created by ECJ case law on procurement, the EU treaty, in principle, allows
governments and other public authorities to choose to provide a service directly by in-house
organisation (article 295).43 The EC’s guidance states: “A public authority has full discretion to
decide whether it provides services itself or entrusts them to a third party. Public procurement rules
only apply if the public authority opts to externalise the service provision….” 44. So the first, and
most fundamental, decision, whether to provide a service directly, can be publicly debated
by reference to public service criteria – what is best for the public service - not on what is
best for the market.
The treaty includes a number of provisions which support public services. The tasks and activities
of the EU include promoting “a high level of employment and of social protection….the
strengthening of economic and social cohesion....” (article 2). There is a general provision
requiring the EU and its member states to ensure that services of general economic interest
(SGEI) “operate on the basis of principles and conditions which enable them to fulfil their missions”
(article 16).
The Lisbon treaty would strengthen these provisions in three ways. Firstly, the overall aims of the
EU will include a “social market economy, aiming at full employment and social progress…”
Secondly, it states that an EU regulation “shall establish these principles and set these conditions
[for services of general economic interest] without prejudice to the competence of Member States,
in compliance with the Treaties, to provide, to commission and to fund such services”. Thirdly, it
adds a protocol recognising “the essential role and the wide discretion of national, regional and
local authorities in providing, commissioning and organising services of general economic interest
as closely as possible to the needs of the users;” and stating that “The provisions of the Treaties
do not affect in any way the competence of Member States to provide, commission and organise
non-economic services of general interest.” 45

These provisions can strengthen the position of unions and others in arguing that public authorities
can themselves decide how to organise public services, and should do so in the interests of public
service objectives. 46
5.2. Procurement directives

The EU procurement directives were revised and consolidated into two directives in 2004: the
Public Sector Directive 2004/18 and the Utilities Directive 2004/17.
The directives allow public authorities to use a range of conditions and criteria in procurement,
including social and environmental issues. Article 26 of the Public Sector Directive introduced a
new explicit power for public authorities to use social and environmental conditions in procurement;
Article 23 allows public authorities to specify technical conditions; the directive also requires
authorities to exclude companies which have been convicted of corruption, fraud, money
laundering, or participation in a criminal organization (article 45), and allows authorities to exclude
‘abnormally low bids’ (article 55). The EC is currently drawing up a guide on social procurement.
The EC has also produced a paper of Frequently Asked Questions (FAQs) on the relations
between the procurement directives and services of general interest (SGI). 47 These FAQ state
that clauses cannot be inserted restricting a tender to non-profit operators only, but ‘familiarity with
the locality’ may be an acceptable criterion, if stated in advance.
A number of EU directives lay down standards which have the effect of regulating the quality of
public services. Compliance with these standards may be part of an argument for protecting public
sector provision.
5.3. Union involvement in public services reform

5.3.1. EU level union initiatives on public service principles
Union activity at EU level has been focussed on establishing basic principles of public services,
through campaigns, social dialogue, and relations with European political groups. EPSU is
engaged in social dialogue with representative bodies in the public sector at EU level, including
healthcare, local government, and utilities. In 2008 the EPSU set out a list of 10 core proposals for
the socialist group in the European parliament, which includes all the social democratic parties of
EU countries. These proposals include demands for European framework provisions for public
services, an EU-wide evaluation of the impact of PPPs, legislation to ensure transparency in EU
institutions involved in social policy-making. 48
EPSU has set out core principles for an EU-wide campaign for quality public services, including the
following points:
freedom of choice for local authorities to give the best service possible.
sufficient legal clarity from the EU to give a secure basis of principles to quality public services.
preventing big business “skimming-off” profitable parts of services.
a right for the public to have a say in how public services are run.
a guarantee that the services are available to all.49
5.3.2. Dialogue at national and local level
The most general issues concerning the public sector may be dealt with under the general
dialogue between trade union centres and governments: for example, the social agreement for
2003-2005 in Slovenia between union confederations and the government included commitments
to efficient use and allocation of public spending and to a more equitable distribution of the burden
of taxation. 50
5.3.3. Worker participation

Some initiatives highlight the value to the public service organisation of workers’ knowledge. The
Swedish public service union Kommunal established a new approach to public sector reform based
on use of workers’ ideas. The approach has been formalised into a system known as ‘Kom An!’

(which means ‘Come On!’). It makes workers “researchers in their own jobs”, and involves a total
review of the whole organisation, centred on workers discussing ways of improving their jobs. 51
Since the late 1990s, Fagforbundet (the Norwegian Union of Municipal and General Employees)
has promoted a ‘model municipality’ policy, based on a similar principle of using the ideas of public
sector workers to improve the quality of services.52One element of the policy is that management
agree that during the period of a model municipality project there will be no attempt to use
competitive tendering in the relevant service. 53
The UK union Unison has developed the idea of ‘co-production’ of public services by workers and
users, in collaboration with a social democratic think-tank, Compass. A new joint report arguers
that instead of imposing reforms from the centre, public services can better be improved “through
the interaction of staff and users”.
5.4. Public participation

There are initiatives for greater public participation in the decisions of public authorities in many
countries in Europe. In Bulgaria, for example, there is a campaign for greater public participation
which is closely linked to the issues of freedom of information and attacks on corruption.
The Norwegian union Fagforbundet (the Norwegian Union of Municipal and General Employees)
has engaged in political campaigns. For a 2003 election campaign in the city of Trondheim the
union drew up a 19-point plan, including the reversal of privatisations. The elections were won by
the left parties, which then re-municipalised the city’s bus company and the cinemas, and ended
the outsourcing of care for the elderly. The city council also increased investment in schools;
improved social assistance for single mothers; 54 introduced a system of planned maintenance for
buildings, based on extensive consultations; 55and is developing free wireless internet connections
across the city.56
There is a strong movement in Spain in favour of ‘participatory budgeting’ on the Porto Alegre
model. In Sevilla, the municipality allocated between 32 and 42 per cent of its budget to 18
districts; all residents in the neighbourhoods then voted for particular projects, social policies and
actions in their area and elected representatives to go to the assembly of districts; then the
assembly decided on an overall budget, a decision which is binding on the municipality..57
A number of Italian municipalities are also developing participatory systems. This movement is
centred around the Rete del Nuovo Municipio (new Municipality Network), which was set up in
2002 after the first World Social Forum. The network involves over 80 Italian municipalities,
academics, unions, and other individuals and organisations. A leading example is the town of
Grottammare, which created neighbourhood associations and committees to participate in
decision-making, including budgetary policy. These mechanisms have led to the implementation of
over 100 citizen initiatives, and more rapid development of the town and its public services.
5.5. Referenda
In a number of countries legislation exists which enables organisations to mobilise votes and
demand referenda on specific issues. In 2007 a coalition of social organisations and unions in
Leipzig campaigned for a referendum to stop the mayor from selling the municipal shares in the
city’s energy company. Within 4 months, over 42,000 signatures were obtained, which obliged the
city to hold a referendum. In the actual referendum itself, there was a turnout of 35%, with an
87.4% majority in favour of the proposal, which forbids the city from privatising any essential
services, including the energy company. 58
Similar referenda have taken place in other countries:
• In Slovenia January 2003 in two referendum ballots the Slovenians voted decisively against
the privatisation of the state railways and the telecommunications industry.59
• In Hungary in December 2004 65% of voters rejected privatisation of hospitals 60
• In Netherlands, in May 2002 Amsterdam voted against the privatisation of the city transport
company GVB61

5.6. Service quality and procurement

Procurement policies have been developed in all EU countries to promote environmental
sustainability and better meals for school children. A survey found a total of 103 initiatives to use
procurement for environmental or social objectives – and none of the initiatives have made any use
of PPPs: “Partnering and financial/economic instruments hardly exist in this context.” 62 Public
authorities use procurement policies for food purchases in schools, care homes and hospitals to
support local communities as well as environmental and health objectives. 63
In 1997 the city of Copenhagen established divided its organisation into a ‘purchaser’ part and an
in-house technical services company acting as a ‘provider’. This led to internal tensions over
objectives within the organisation as a whole. From 1st January 2008 the provider and purchaser
were reunited into one organization with responsibilities for the whole range of services, with three
divisions for parks, cleansing and roads – but some services will still be carried out by the private
sector. 64
Unison has protected and improved in-house services at Newcastle City Council by intensive
involvement at all stages in proposals for procurement of revised services. The union successfully
defended the in-house provision of social service meals for home, resource and day centres, by
developing a service improvement plan. The in-house bid defeated proposals to supply frozen
meals from multinational companies ISS and Appetito.65
5.7. Public ownership and public finance

A core traditional role of public ownership is that it enables public authorities to invest in services
and facilities which PPPs or commercialised services have failed to maintain. Germany continues
to maintain a strong base of public sector service organisations through its stadtwerke, enterprises
which are usually owned by municipalities. Despite some creation of PPPs through sale of shares,
these municipal enterprises remain a vital part of German public services and have in some cases
expanded their role at the expense of the private sector. For example, Stadtwerke Osnabrück was
created in 1890, transformed into a public limited company in 1964, but remains wholly-owned by
the city of Osnabrück in 2007. It is responsible for electricity, gas, district heating, water, and local
public transport services. It has increased its responsibility in recent years, adding sewage disposal
and treatment, and management of three new swimming baths.66 In Bergkamen, the waste
management service was remunicipalised in 2006. The in-house service was able to reduce costs
by 30% through cooperation with other councils, reduce fees to users, while still maintaining the
level of pay and conditions.
In Estonia, the railways were partly privatised in 2001 when the state sold a 66% share to a
consortium of international companies, thus creating an institutional PPP in which the public sector
was the junior partner. In January 2007 the state bought back all the shares of the private
consortium, thus ending the PPP and returning the railways to full public ownership again.
5.8. European Social Model and solidarity

The notion of the ‘European Social Model’ (ESM) is often used to support the idea that public
services have a central role to play in European countries. At the centre of this model is the
concept of social solidarity, which has attracted growing interest in recent years in analyses of
public services in Europe, and which contrasts with the individualistic political principles of neo-
liberalism. 67Legal analysts also identify the principle of solidarity as of central importance to the
legal framework of public services.68 The principle of solidarity financing continues to be visible in
the operations of the EU itself. About one-third of the EU’s budget is spent through the structural
funds, which are designed to reduce inequalities between member states by centrally financing
developmental spending, especially expenditure on environmental and transport infrastructure, and
paying for retraining of workers in declining regions, and combat discrimination against groups of
workers. The 2007-2013 programme involves €304 billion. 69

Ver.di and Unison have published a joint statement on the values underlying public services and
the importance of developing public services. The booklet “The Future of Public Services in
Europe/ Die Zukunft der öffentlichen Dienste in Europa” identifies a series of common issues which
extend across the different national administrative practices for delivering services.
Public services, especially public sector investment, are key elements in the policies of social
democratic governments in key emerging countries, for example India, Brazil, and South Africa.
Major international NGOs such as Oxfam and Bread for the World now argue that public services
are central for social and economic development and social and territorial cohesion. Public
Services International (PSI) is running a global campaign for quality public services.
5.9. Union campaign in Italy

Italian trade union FP-CGIL (Funzione Pubblica – Confederazione Generale Italiana del Lavoro)
has been proactive in establishing networks and joint initiatives with Italian NGOs and social
movements. Such initiatives aim at promoting alternative policies to the neo-liberal agenda in the
area of public services, particularly in water supply and sanitation. The choice to focus on the water
sector derived from the need to start the struggle for a more socially-oriented approach to public
service provision, mindful of the public interest, on favourable ground. Since the beginning, FP-
CGIL’s strategy has been to use any successes obtained by the water campaigns as an example
for replicating similar experiences in other sectors. In terms of tactics and strategies adopted, there
has been a considerable interweaving of experiences from the water campaigns and those run in
other sectors.
The main lesson drawn is that treating NGOs and civil society organisations as equal partners is
vital to strengthening mutual support around common objectives shared by trade unions and social
movements. This has enabled trade unions to achieve results beyond their actual social and
political clout. Results obtained by the water campaigns undertaken in Italy included progress on
promoting national legislation outlawing water privatisation and the exclusion of water services
from the application of EU competition law. FP-CGIL has recognised that the above characteristics
make the water sector particularly mature to start a struggle to counter the neo-liberal offensive.
However, it has devised a conscious strategy to “export” the struggle to other public services
where the rejection of neo-liberal policies is no less urgent.
6. Public service workers and PPPs
6.1. Public services and employment issues

The quality and efficiency of public services depends on the workers delivering those services.
Their commitment and professionalism, sometimes called the ‘public service ethos’, are a key
element in delivering those services. The impact of PPPs on workers thus also has a negative
impact on the public service concerned, because it affects workers’ motivation, and limits the
resources spent on service provision. The impact of PPPs on public employees therefore matters
to everybody, as well as the workers themselves.
PPPs generally worsen the employment conditions of workers and their collective organisation in
unions. These effects are caused by firstly, the employees being transferred to a separate private
employer, and secondly, by the dominant role of the PPP contract itself, which forces public
authorities to prioritise payments to the PPP company over all other expenditure. The effects can
be categorised under five broad headings:
Security of employment is reduced, because it is related to the contract itself and/or the private
company, rather than the public authority. The private company has a greater incentive to
reduce employment in order to increase profit margins, and has less incentive to maintain
‘overheads’ such as training. The terms of a contract and the profit-maximising incentives of
the private company, may lead to further casualisation through the use of short-term contracts
or secondary sub-contracting.

Workers normally lose their status as public employees. Possible future returns to public sector
employment become more complex. Workers may lose the benefit of public sector pension
schemes.
It is more difficult to protect and improve pay and working conditions. This depends on the
enforceability of indirect mechanisms such as fair wages clauses or legal rules on sectoral pay
agreements. The PPP contract itself may not guarantee funding for nationally agreed pay
increases. Private employers may apply different employment conditions to new entrants
compared with transferred workers, creating a ‘2-tier’ workforce.
Union organisation is weakened because employees are divided into smaller units with
different employers, thus weakening solidarity and forcing unions to deal with a number of
different employers. The management of private companies is not directly subject to
considerations of public policy in relation to employment issues, and may thus be less
supportive of union organisation and workers’ rights.
Other public service workers may also be affected as a result of the existence of the contract. If
the income of a public authority is reduced, or if the PPP itself becomes more expensive than
expected, the cuts are concentrated on the remaining direct employees, because the PPP
contract cannot be broken.
PPPs also have the general effect of weakening weaken the public sector itself, and the role of
public services. Strategies for dealing with these effects are the subject of a separate report.
The impact of PPPs on employees is affected by a number of factors. These include the EU legal
and policy framework for procurement, PPPs, and employment law, which is common for all
countries in the EU (and has a strong influence on countries which are candidates for accession, or
in the EEA, or in the EU neighbourhood). The impact also depends on the legal and policy
framework for procurement, PPPs, and employment law in each country; the rules and policies of
the public authority which creates a PPP; the practices of the private companies; and collective
agreements at all levels. The possibilities for negotiating protection for employees and unions also
depend on local social and political context, including the strength of union organisation.
Workers can be protected under three broad headings:

the general use of ‘fair wages’ clauses, and other social clauses, under international and EU
law;
the negotiation of national and local framework agreements to regulate the impact of PPPs on
employment, pay and conditions
the use of national and local procurement laws and policies to regulate the impact of PPPs on
employment, pay and conditions.
6.2. Legal framework

6.2.1. ‘Fair wages’ clauses
‘Fair wages’ policies have been applied to public sector contractors for over a century, in order to
use the economic activity of public authorities to “create avenues of just and secure employment”.
In the 20th century procurement developed as a key policy instrument for supporting the
employment of disabled workers, and for eliminating racial, gender or religious discrimination. In
the USA, for example, the civil rights movement led to the use of procurement preferences as part
of ‘affirmative action’ policies to advance the economic status of groups who had suffered
discrimination, and similar legislation has since been implemented in South Africa since the ending
of apartheid. Procurement has also been used as an instrument of international solidarity, for
example by excluding companies who were trading with the apartheid regime in South Africa.70
The International Labour Organisation (ILO) adopted the principle of fair wages clauses in 1949.
Despite adverse changes in international climate, such as the World Trade Organisation (WTO)
government procurement agreement (GPA), which requires liberalisation, fair wages clauses are
still being used and introduced by countries as an instrument of social policy. In Belgium new
social clauses were introduced in the Brussels region in 1999; Hungary, Slovakia and Latvia have
all introduced for the first time new procurement laws which place conditions on the employment
practices of companies tendering for public contracts. 71

ILO Convention 94 is intended, firstly, to prevent companies bidding for public contracts from
competing on the basis of cutting labour costs; and secondly, to ensure that public contracts do not
exert a downward pressure on wages and working conditions. An ILO report published in 2008
notes that the increased use of outsourcing - including through PPPs - and the use of labour-only
subcontracting, make the problems even more acute now than when ILO 94 was first agreed.
72
Article 2 requires governments which have ratified the convention to include fair wages clauses in
government contracts. Sixty countries have ratified convention 94, but implementation is weak. In
some countries which have signed the convention, such as France, new legislation on
procurement no longer requires a fair wages clause.73
6.2.2. EU procurement laws
It is sometimes suggested that the ‘complexity’ of the arrangements in PPPs makes it uncertain
whether these are covered by the conventional procurement process.74 In the EU, there is no
doubt that PPPs are covered by procurement laws and treaty rules on competition, because they
involve the award of contracts to entities which are separate from the public authority.75 Policies,
rules, laws and treaties concerned with public contracts, including ILO Convention 94, are
therefore clearly applicable to PPPs.
Opponents of fair wages clauses have suggested that labour clauses in general, and the ILO
Convention itself, may be in conflict with the EU procurement directives.76 But the procurement
directives do not, and never have, required the selection of the cheapest bid: they explicitly allow
for the selection of the ‘most economically advantageous tender’, which can include a range of
other criteria.77 Analysts have therefore dismissed the idea of any general incompatibility: “there is
no conflict or contradiction between the EU legal regime on public procurement and the ILO
Convention No. 94”78; the European Commission itself has always been careful not to imply any
conflict and the 2008 review by the ILO also concludes unequivocally that there was no conflict.79
Even the Ruffert judgement (see below), which seriously weakens the impact of fair wages
clauses, is not based on a conflict between the social clause and the procurement directives, but
on a perceived conflict with the Posting Directive.
The 2004 EU procurement directives do not require a fair wages clause, but they allow fair wages
clauses and other provisions to protect employment conditions. The Ruffert judgment does not
make such clauses illegal (see below). Article 26 of the Public Sector Directive 2004/18/EC
explicitly acknowledges that public authorities can use social and environmental conditions in
procurement:
Thus procurement contracts, including PPPs, may in principle:

Include a fair wages clause
require compliance with ILO conventions, such as convention 94, even if they have not been
adopted in national law
select contractors on the basis of their social and environmental policies
select contractors on the basis of their proven ability to monitor their own sub-contractors’
compliance with such social clauses.
include conditions requiring suppliers to include equivalent conditions in sub-contracts, for
example that clothing supplies must not be made using child labour. 80
Under article 53, in selecting the contractor, the public authority can use not only the simple
criterion of the lowest price, but also on the basis of other criteria specified in advance; Article 48
requires public authorities to assess the technical and professional capability of a contractor;
Article 55 allows authorities to exclude ‘abnormally low bids’ and to demand information about
employment and working conditions; Article 45 requires authorities to exclude companies which
have been convicted of corruption, fraud, money laundering, or participation in a criminal
organization, and also provides that a contractor may be rejected from the participation in a public
contract if it has failed to pay social security contributions or taxes.

Two rulings by the ECJ threaten the ability of public authorities to regulate pay and conditions of
workers employed by contractors. In April 2008, the ECJ ruled in the Rüffert case that a German
regional authority, the land of Lower Saxony, could not enforce a requirement for contractors to
apply the pay and conditions in a local agreement, where workers were ‘posted’ from another
country (in this case, Poland). 81 The ECJ ruling was criticised by the ETUC and the association of
public sector employers, CEEP, as an invitation for social dumping and an infringement of the
freedom of public authorities to pursue social goals.82
6.2.3. Other EU law and institutions
The Acquired Rights Directive (ARD) EC 2001/2383 protects employees when the business in
which an employee works transfers from one employer to another. This protects employees’ terms
and conditions at the point of the transfer, but not subsequent changes to these conditions and not
the conditions of workers recruited after the transfer. It is also limited in terms of the protection it
offers in respect of pension rights.
In general the outsourcing of work by local authorities, including outsourcing through PPPs, is
covered by the directive. The UK government for example has said that TUPE (the UK
implementation of the ARD) should always apply, including PPPs. 84
The EU employee information and consultation Directive EC 2002/1485 applies to the public as well
as the private sector and gives employees the right to information and consultation on information
on any plans which will affect employment, substantial changes in work organisation or in
contractual relations, including collective redundancies and transfers of undertakings.86
The European Works Councils Directive (EWC) 94/45 87 gives workers the right to representation
on a EWC of an employer which operates across two or more EU countries. Workers employed by
a private company as a result of a PPP are equally entitled to be represented on a EWC if the
company concerned operates across two or more EU countries.
The EIB’s Environmental and Social Practices handbook 88 emphasizes the importance of public
consultations, and recognises that the stakeholders include unions and employees; it also includes
a section on “social assessment” which covers: “…negative impacts on local employment;
minimum labour standards; exacerbated social inequalities”. In relation to a private power station
project in Bulgaria, the EBRD required the private company to consult the union in advance, to
demonstrate that they would not be at risk of labour disputes.
6.3. Negotiated agreements

6.3.1. Framework agreements and national PPP policies
A framework agreement can specify the rules on consultation rights and procedures to be followed
when PPPs are proposed or implemented. The terms of such a framework may be included in a
law, a code, or a collective agreement. The negotiation of these agreements may make use of
political mechanisms and relationships. The new laws in Hungary (see below) were facilitated by
the relations between the unions and the socialist party in government at the time.89
Negotiations between the UK trade unions and the Labour government in power since 1997 have
resulted in a number of agreements concerning the treatment of employees in PPPs created under
the government’s private finance initiative (PFI). The key principles of these agreements have been
included in the official government policy guidelines for all UK public authorities on PFI schemes, 90
and in the guidance on assessment of comparative value-for-money.91
The government guidelines now state as a central policy rule that: “the Government uses PFI only
where it can be shown to deliver value for money and where this is not at the expense of
employees’ terms and conditions. …... The Government continues to pursue a strategy for
enhancing worker protections and ensuring fair and reasonable treatment in PFI projects, based
on: being open with staff; protecting terms and conditions for both transferees and new joiners;
protecting staff pensions; and retaining flexibility in public service delivery, including through PFI.”
A more extensive agreement in Scotland requires consultation with unions at the earliest possible
stage; the creation of project boards for all proposed PPPs, with a trade union representation on

the board; PPPs do not necessarily involve the transfer of any employees; new employees must be
offered the same overall pay and conditions as transferred workers – thus eliminating the two-tier
workforce; tenders for PPPs will be evaluated against specific employment criteria, including pay
and conditions, training, and union recognition. 92
The Italian unions negotiated a national framework agreement with the centre-left government in
2007. The agreement included a commitment to limit outsourcing and the use of consultants, and
return to in-house services.”93
The Irish trade unions negotiated a framework agreement with the government on the
implementation of PPPs in Ireland in 2001. The agreement specifies that: “Public service
employees should be informed at the earliest possible stage of proposals for the introduction of
PPPs and of significant developments throughout the process.” 94
6.3.2. Codes and agreements on pay and conditions
It is possible to negotiate greater protection for workers employed on PPPs, through agreements at
national or local level which provide greater security both for workers transferred and for new
recruits to a PPP. The UK unions have negotiated a series of agreements protecting workers
against transfer and preserving public sector employment status; codes of practice on the pay and
conditions of workers recruited after the PPP starts; local agreements giving additional protection
for transferred and new workers; agreements protecting the pension rights of workers.
The unions negotiated an agreement with the government in relation to healthcare PPPs for the
‘Retention of Employment’ (RoE) for staff employed on services such as cleaning and catering to
have the option to remain employees of the national health service. Employees have been
seconded, rather than transferred, under strategic partnerships with city councils in Birmingham,
Glasgow, Liverpool, Rochdale, Rotherham, Salford, Somerset and Suffolk: over 4,000 employees
have been protected by these agreements.95 In a PPP which took over the water service in Berlin,
Ver.di negotiated an agreement which protected the status of the workers as local government
employees, and also negotiated restrictions on job cuts following the PPP.
In the UK, the unions negotiated a code providing that all new recruits by the private companies
had to be given the same terms and conditions as those transferred, given legal strength by
incorporating a reference into the Local Government Act. The principles of this code were
extended to the wider public sector in 2005.96 A number of local authorities in the UK have
reached agreements with the unions which provide even greater protection for transferred and
existing workers, and for trade union rights, for example by a guarantee that there is no
deterioration in pay and conditions during the life of a contract, and trade union bargaining rights
for all staff, including new starters. The unions have also negotiated agreements with a number of
the largest companies involved in PPPs, including ISS, Sodexho, Compass, and Carillion, which
cover the detailed implementation of changes to pay, hours and holidays in line with a sectoral
agreement for health workers.
The UK unions also negotiated a code requiring that when any public sector staff are transferred to
a private employer, under a PPP or any other form of outsourcing, the new employer must provide
a pension scheme ‘broadly comparable’ to the pension rights they enjoyed as a public sector
employee.97 For local government, police and fire staff, a private company operating a PPP can be
admitted to the Local Government Pension Scheme, so that staffs who are transferred can
continue unbroken membership of the scheme, and new recruits to a PPP employer can also get
the benefits of the local government pension scheme. 98
6.4. National and local procurement rules

The combined result of history, the ILO convention, and the EU directives has produced a varied
pattern of legislation on social clauses in procurement contracts.

In 2005 Hungary introduced a new law (Act CLXXVII) on ‘orderly labour relations’. This law makes
participation in public procurement tenders, and eligibility for government subsidies, conditional on
employers observing good labour practices. This legislation was used in November 2007 to
sanction a manufacturing company. Following a series of trade union complaints about
intimidation, breach of agreements and breach of labour laws, fines were imposed by the labour
inspectorate, and in November 2007 the government suspended the payment of a €0.6 million
training subsidy to a Korean-owned tyre factory, Hankook.99
Norway has introduced new rules on public procurement from April 2008 following its adoption of
ILO Convention 94. These rules require service and construction contracts issued by all public
authorities, not only central government, to place an obligation on the subcontractor to provide its
employees with wages and conditions no less favourable than those laid down in national
collective agreements or the local norm, including working time regulations.. 100
The 2006 Public Procurement law of Latvia introduced in 2006 encourages contracting authorities
to take into account a wide range of criteria, including the average amount of social security
insurance payments made by companies, designed to penalise companies which have not
employed workers ‘ion the books’ and so avoided social insurance payments.101 The Latvian
government has been concerned for some years about the extent of illegal working, which is
prevalent especially in the construction sector. A working party in 2006 recommended various
actions, including disqualifying companies that have employed workers without employment
contracts and have paid wages ‘under the table’ from participating in state and municipal
procurement tenders for two to three years. “There is a public consensus in Latvia that illegal work
and wages must be eliminated, and there is strong support for the implementation of measures
planned by the government.” 102
In May 2007 the city of Seville, Spain, adopted general social rules applicable to public contracts
for construction works and services worth more than €150,000 euros and lasting longer than 9
months. A first draft of the law was rejected following a legal opinion from the regional authority
that it might be considered contrary to the EU procurement directives because it introduced,
among the selection criteria, social criteria which were not related to the subject of the contract. 103
The municipality therefore modified the law to put the emphasis on the introduction of social
considerations as conditions for the execution of the contract, not as conditions for the selection of
the tender.
The city of Aarhus in Denmark uses standard social clauses in all its contracts. One type of social
clause requires the employment of a proportion of staff (typically 10%) needed to carry out the
contract from specific categories of people - long term unemployed, long term sick, disabled, etc.
The other type requires contractors to adopt and implement policies –on ethnic equal opportunities,
human resources, and health and safety. 104
The Greater London Authority (GLA) has adopted a comprehensive social procurement policy
which includes standard contract conditions on employment issues. The policy is applied not only
through contract conditions but a series of meetings with suppliers and community organisations to
ensure the policies are understood and supported. The GLA also sets a ‘London Living Wage’
(LLW), significantly above the national minimum wage. It estimates that over 400 workers gained
from implementation of the LLW in 2007. 105

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8. Notes
1
IFSL. PFI in the UK & PPP in Europe 2008 http://www.ifsl.org.uk/uploads/PFI_Update_2008.pdf
2
RiskMetrics Group 2008. Infrastructure Funds: Managing, Financing and Accounting In Whose Interests? April 2008
3
Green Paper on Public-Private Partnerships and Community Law on Public Contracts and Concessions. COM(2004)
327 final. Brussels 30.04.2004 .
http://europa.eu.int/comm/internal_market/publicprocurement/docs/ppp/greenpaper/com-2004-327_en.pdf . For a
summary and critique see www.psiru.org/reports/2004-07-U-ECPPP.doc
4
National governments have also provided considerable support, including special funding. PPPs have been promoted
in the USA by using federal government funding to subsidise the higher costs of private borrowing. (Phineas Baxandall.
2007. Road Privatization: Explaining the Trend, Assessing the Facts, and Protecting the Public U.S. PIRG Education
Fund September 2007 http://www.uspirg.org/uploads/CK/Qk/CKQkZq9XOp57ybWVF4zr3w/Road-Privatization.pdf )
5
http://www.eib.org/about/publications/annual-report-2007.htm
6
Guide to Successful Public-Private Partnerships . DG Regio March 2003
7
EIB Annual report 2007 http://www.eib.org/attachments/general/reports/ar2007en.pdf
8
New decision of Eurostat on deficit and debt Treatment of public-private partnerships 11/02/2004
http://europa.eu.int/rapid/pressReleasesAction.do?reference=STAT/04/18&format=HTML&aged=0&language=EN&guiLa
nguage=en
9
International Monetary Fund Public Investment and Fiscal Policy March 12, 2004 para 36
http://www.imf.org/external/np/fad/2004/pifp/eng/PIFP.pdf
10
IFRIC 12 Service Concession Arrangements November 2006
http://www.iasb.org/Current+Projects/IFRIC+Projects/IFRIC+12+Service+Concession+Arrangements/IFRIC+12+Service
+Concession+Arrangements.htm
11
HSJ Noel Plumridge on problems with PFI accounting rules Published: 31 July 2008 09:00
http://www.hsj.co.uk/opinion/columnists/2008/07/noel_plumridge_on_problems_with_pfi_accounting_rules.html
12
Commission Interpretative Communication On Concessions Under Community Law (2000/C 121/02) http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2000:121:0002:0013:EN:PDF
13
Commission Interpretative Communication on the application of Community law on Public Procurement and
Concessions to Institutionalised Public-Private Partnerships (IPPP) C(2007)6661 Brussels, 05.02.2008
http://ec.europa.eu/internal_market/publicprocurement/ppp_en.htm
14
Case C-360/96, Gemeente Arnhem v. BFI Holding BV, [1998] ECR I-6821.
15
Case C-107/98, Teckal Srl v. Comune di Viano, [1999] ECR I-8121, para. 50
16
Case C-458/03 Parking Brixen, judgment of 13 October, 2005,
17
Case C-26/03, Stadt Halle v. Arbeitsgemeinschaft Thermische Restabfall, [2005] ECR 0
18
Tendering or Direct Awarding of Public Services – Plea for the Right to Choose for Territorial Authorities: on the Need
for Legal Provisions on the In-house Concept in the European Union. Statement of the Scientific Council

of the Gesellschaft für öffentliche Wirtschaft may 2007 http://goew.de/pdf/c.1.9.goew.pdf . The original German
language report is at http://goew.de/pdf/c.1.8.goew.pdf
19
Case C-84/03 Commission of the European Communities v Kingdom of Spain http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62003J0084:EN:NOT
20
Public procurement: infringement proceedings against France Reference: IP/07/922 Date: 27/06/2007
ge=en
21
Public procurement: infringement proceedings against Italy and Germany concerning waste management services
Reference: IP/08/502 Date: 03/04/2008
ge=en
22
Public procurement: infringement proceedings against Italy and Germany concerning waste management services
Reference: IP/08/502 Date: 03/04/2008
ge=en
23
Office for National Statistics Public sector finances August 2008 18 September 2008
24
Allyson M. Pollock and David Price, “Has the NAO Audited Risk Tranfer in Operational Private Finance Initiative
Schemes?”, Public Money and Management, June 2008, pp 173-178
25
Eduardo Engel, Ronald Fischer and Alexander Galetovic 2007 The Basic Public Finance Of Public-Private
Partnerships July 2007 Revised February 2008 Cowles Foundation Discussion Paper No. 1618
http://cowles.econ.yale.edu/
26
(PPPs, para 23).
27
Health Policy xxx (2008) xxx–xxx Available online at www.sciencedirect.com Ex-ante evaluation of PFIs within the
Italian health-care sector: What is the basis for this PPP? Antonio Barretta ∗, Pasquale Ruggiero
doi:10.1016/j.healthpol.2008.02.005
28
Friedrich P. and Reiljan J. 2007. An Economic Public Sector Comparator for Public Private Partnership and Public
Real Estate Mangament. ASPE Conference St Petersburg November 2007.
http://eng.som.pu.ru/files/upload/research/conferences/ps_reform/2007/ASPE_Conference_Program_eng.pdf
29
OECD 2008. Public-private partnerships: In pursuit of risk sharing and value-for-money. GOV/PGC/SBO(2008)
30
International Monetary 2004 Fund Public-Private Partnerships March 12, 2004
http://www.imf.org/external/np/fad/2004/pifp/eng/031204.htm
31
Financial Times, 12 June 2008
32
EIB Economic and Financial Report 2006/01 EX ANTE CONSTRUCTION COSTS IN THE EUROPEAN ROAD
SECTOR: A COMPARISON OF PUBLIC-PRIVATE PARTNERSHIPS AND TRADITIONAL PUBLIC PROCUREMENT
Frédéric Blanc-Brude, Hugh Goldsmith and Timo Välilä* † http://www.eib.org/attachments/efs/efr06n01.pdf
33
Estache et al (2005), p.6 (see bibliography)
34
Pina, Vincente and Torres, Lourdes (2006) 'Public-private efficiency in the delivery of services of general economic
interest: The case of urban transport', Local Government Studies, 32:2, 177 — 198
35
Transaction costs, relational contracting and public private partnerships: a case study of UK defence David Parker and
Keith Hartley Journal of Purchasing and Supply Management
Volume 9, Issue 3 , May 2003, Pages 97-108
http://www.sciencedirect.com/science?_ob=JournalURL&_cdi=12893&_auth=y&_acct=C000027518&_version=1&_urlVe
rsion=0&_userid=634187&md5=c5218be5e9f78f1fd27ddb01b951c843
36
Gerti Dudkin and Timo Välilä 2005 Transaction Costs In Public-Private Partnerships: A First Look At The Evidence.
EIB Economic and Financial Report 2005/03 http://www.eib.org/Attachments/efs/efr05n03.pdf
37
Torres, L. and Pina, V. (2001). "Public-private partnership and private finance initiatives in the EU and Spanish local
governments". The European Accounting Review, (10:3), pp. 601-619.
38
Flyvbjerg, B., Holm, M. K. S., & Buhl, S. L. (2002). Cost underestimation in public works projects: Error or lie? Journal
of the American Planning Association, 68(3), 279–295. ; Bent Flyvbjerg, Mette K. Skamris Holm, and Søren L. Buhl
2005. The Case of Transportation Journal of the American Planning Association, Spring 2005, Vol. 71 No.2
39
House of Commons Committee of Public Accounts HM Treasury: Making
changes in operational PFI projects Thirty–sixth Report of Session 2007–08 HC 332 September 2008
40
Chong E., Huet F., and Saussier S. 2006 Auctions, Ex Post Competition and Prices: The Efficiency of Public-Private
Partnerships. Annals of Public and Cooperative Economics 77:4 2006 pp. 521–554
41
House of Commons Transport Committee: The London Underground and the Public–Private
Partnership Agreements Second Report of Session 2007–08 2007–08 HC 45 16 January 2008
42
See the various initiatives examined by the PUBLIN project, for example http://www.step.no/publin/reports/d24-
summary-final.pdf
43
Article 295 is very broad: “This Treaty shall in no way prejudice the rules in Member States governing the system of
property ownership.” The EC FAQ say that in effect there is no separate entity so there is no contract to tender: “The "in-
house" exception is meant to cover a situation where a public authority decides to provide a service itself, albeit acting
through a legally independent entity. In this case the public authority and the legally independent entity are effectively
regarded as one. Such a relationship is neither covered by the principles of transparency, equal treatment and non-
discrimination derived from the EC Treaty, nor by the public procurement Directive” (EC FAQ 1.2)
44
Frequently asked questions concerning the application of public procurement rules to social services of general
interest. COMMISSION OF THE EUROPEAN COMMUNITIES Brussels, 20.11.2007 SEC(2007) 1514 Accompanying

document to the Communication services of general interest on "Services of general interest, including social services of
general interest: a new European commitment" {COM(2007) 725 final} {SEC(2007) 1515} {SEC(2007) 1516}
45
Lisbon Treaty p.13 new article 2 of treaty on EU; p.52, amendments to article 16 of treaty on the Functioning of the
European Union; p.159 Protocol on services of general interest
46
Hencks 2008 An independent evaluation of services of general interest European Economic and Social Committee
TEN/289 Brussels 10 January 2008 DRAFT OPINION on services of general interest of the Section for Transport,
Energy, Infrastructure and the Information Society on (own-initiative opinion) Rapporteur: Mr Hencks
47
Commission Staff Working Document. 2007 Frequently asked questions concerning the application of public
procurement rules to social services of general interest SEC(2007) 1514 Brussels, 20.11.2007
http://ec.europa.eu/services_general_interest/docs/sec_2007_1514_en.pdf
48
http://www.epsu.org/a/3838
49
http://www.epsu.org/IMG/pdf/EN-broch_final.pdf
50
http://www.ilo.org/public/english/dialogue/ifpdial/sd/social_pacts/
51
http://www.world-
psi.org/TemplateEn.cfm?Section=Resource_Bank1&CONTENTID=4569&TEMPLATE=/ContentManagement/ContentDis
play.cfm
52
NUMGE/PSI Model Municipal Methodology http://www.world-
play.cfm
53
NUMGE/PSI Model Muncipal Methodology http://www.world-
play.cfm
54
Eurotopia Issue 4 2007 http://www.tni.org/reports/newpol/eurotopia4.pdf
55
Håkon Kvåle Gissinger 2007 The Maintenance Planning Process In Trondheim
Municipality.http://www.metamorfose.ntnu.no/Artikler/Gissinger_2007.pdf
56
http://www.wirelesscitiescongress.eu/files/wdcbrochure_20_june.pdf
57
Costis Hadjimichalis and Ray Hudson. 2007 Rethinking Local and Regional Development: Implications for Radical
Political Practice in Europe. European Urban and Regional Studies 14(2): 99–113
http://eur.sagepub.com/cgi/content/abstract/14/2/99; Eurotopia Issue 4 2007
http://www.tni.org/reports/newpol/eurotopia4.pdf ; http://www.participacionciudadana.sevilla.org/
58
See http://www.epsu.org/a/3535
59
EUObserver.com February 3, 2003 Direct democracy faces biggest test
60
Hungarian News Agency (MTI) January 7, 2005 Supreme court rejects appeals against referendum result
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Het Financieele Dagblad May 17, 2002 AMSTERDAM KIEST TEGEN VERZELFSTANDIGING GVB AMSTERDAM
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Sustainable Public Procurement in EU Member States: Overview of government initiatives and selected cases. Final
Report to the EU High-Level Group on CSR. Reinhard Steurer, Gerald Berger, Astrid Konrad, Andre Martinuzzi. RIMAS
- Research Institute for Managing Sustainability Vienna University of Economics and Business Administration
www.sustainability.eu Vienna, October 2007
63
Costis Hadjimichalis and Ray Hudson. 2007 Rethinking Local and Regional Development: Implications for Radical
Political Practice in Europe. European Urban and Regional Studies 14(2): 99–113
http://eur.sagepub.com/cgi/content/abstract/14/2/99)
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http://www.oao.dk/index.asp?artikelid=6163 (original in Danish)
65
ESSU Nov 2007
66
CEEP 2005 Serving The Public http://www.ceep.org/content/download/409/2834/file/ServingThePublic.pdf
67
http://www.raumplanung.uni-dortmund.de/irpud/presom/fileadmin/docs/presom/external/Publications/WP3_Report.doc
68
See for example the summary of a recent conference of lawyers on the concept of solidarity in Europe, at
http://www.sussex.ac.uk/law/1-4-9-3-3.html ; and the paper by Nina Boeger ‘Public Service as Social Solidarity’ at the
ETUI-EPSU conference in November 2007 http://www.etui-rehs.org/research/content/download/3134/20183/file/Boeger-
workshopIV.pdf
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See http://bookshop.europa.eu/eubookshop/FileCache/PUBPDF/KN7606542END/KN7606542END_002.pdf
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C. McCrudden (2004) Using public procurement to achieve social outcomes. Natural Resources Forum 28(4), 257–67
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Sustainable procurement practice in the public sector: An international comparative study
Stephen Brammer and Helen Walker University of Bath School of Management Working Paper Series 2007.16.
http://www.bath.ac.uk/management/research/papers.htm . An analysis of the UK results alone also found that “contrary
to the current emphasis in policy, the public sector seems currently to be focused on the social and economic, rather
than environmental, aspects of SP.” Sustainable procurement in the United Kingdom public sector
Helen Walker and Stephen Brammer. University of Bath. School of Management Working Paper Series. 2007.15
http://www.bath.ac.uk/management/research/papers.htm
72
Labour clauses in public contracts: Integrating the social dimension into procurement policies and practices.
International Labour Conference 97th Session, 2008. www.ilo.org/publns
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Labour clauses in public contracts, ILO 2008, p.19
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Labour clauses in public contracts, ILO 2008, p.
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Commission Interpretative Communication on the application of Community law on Public Procurement and
Concessions to Institutionalised Public-Private Partnerships (IPPP) Brussels, 05.02.2008 C(2007)6661, section 2.2;
quoting Case C-29/04, Commission v. Austria, ECR 2005, I-9705, paragraph 42.
http://ec.europa.eu/internal_market/publicprocurement/docs/ppp/comm_2007_6661_en.pdf
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Labour clauses in public contracts, ILO 2008, p. 81
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Article 53 Directive 2004/18/EC Procurement Directive for public works, supplies and services
http://ec.europa.eu/internal_market/publicprocurement/legislation_en.htm

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K. Krüger, R. Nielsen, N. Bruun, European public contracts in a labour law perspective (Copenhagen, DJØF
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Labour clauses in public contracts, ILO 2008, p. 85
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Arrowsmith and Kunzlik (eds), Social and Environmental Policies under the EC Procurement Rules: New Directives
and New Directions (forthcoming from Cambridge University Press): Professor Sue Arrowsmith and Colin Maund CSR in
the utilities sector and the implications of EC procurement policy: a framework for debate.
http://www.nottingham.ac.uk/shared/shared_procurement/publications/CSR_Arrowsmith_and_Maund_version_Nov_20_f
or_web_site.doc
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Case C-346/06 Dirk Rüffert v. Land Niedersachsen Judgment 03 April 2008 http://curia.europa.eu/jurisp/cgi-
bin/gettext.pl?where=&lang=en&num=79919596C19060346&doc=T&ouvert=T&seance=ARRET ; Press Release No
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Public Services

Services International Research Unit (PSIRU)

Public-Private Partnerships (PPPs)

October 2008 Page 2 of 26

1.1. Concept and definitions

1.2. Growth of PPPs

Table 1. PPPs in Europe

October 2008 Page 3 of 26

Source: IFSL (2008)

Source: IFSL (2008)

A number of companies have developed as multinational specialists in building and operating

2. EU law and policies in relation to PPPs

October 2008 Page 4 of 26

2.1. Limits on government deficit

2.2. EU procurement law and PPPs

October 2008 Page 5 of 26

3. Claims and myths about PPPs

October 2008 Page 6 of 26

4. Evaluating PPP proposals

4.1. Cost of capital

October 2008 Page 7 of 26

4.2. Construction costs

4.4. Transaction costs

October 2008 Page 8 of 26

Chart A. Expenditure on PFI schemes in the NHS

4.6. The summary case of Metronet: learning from a failure.

October 2008 Page 9 of 26

October 2008 Page 10 of 26

5.2. Procurement directives

5.3. Union involvement in public services reform

5.3.2. Dialogue at national and local level

5.3.3. Worker participation

October 2008 Page 11 of 26

5.4. Public participation

October 2008 Page 12 of 26

5.6. Service quality and procurement

5.7. Public ownership and public finance

5.8. European Social Model and solidarity

October 2008 Page 13 of 26

5.9. Union campaign in Italy

6. Public service workers and PPPs

6.1. Public services and employment issues

October 2008 Page 14 of 26

Workers can be protected under three broad headings:

6.2. Legal framework

October 2008 Page 15 of 26

Thus procurement contracts, including PPPs, may in principle:

October 2008 Page 16 of 26

6.3. Negotiated agreements

October 2008 Page 17 of 26

6.4. National and local procurement rules

October 2008 Page 18 of 26

October 2008 Page 19 of 26

GLA 2008 Responsible Procurement Policy. 2008 www.london.gov.uk/rp

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FIDIC 1999 Turnkey Contract First Edition 1999 http://www1.fidic.org/resources/contracts/describe/FC-QB-A-AA-

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